House passes bill removing SIFI dollar threshold

The U.S. House of Representatives passed a bill on Thursday that aims to change the way financial institutions are deemed to be systemic risks.

On a 254-161 vote, the House passed H.R. 6392, the Systemic Risk Designation Act of 2016, which would remove what companies and business associations argue is an arbitrary size threshold and base a final determination of an institution's risk on criteria set out in Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Following the global financial crisis, Congress chose $50 billion as the threshold to automatically designate financial institutions as systemically important financial institutions that are “too big to fail,” subjecting these companies to enhanced prudential requirements. But financial institutions have pushed back against the threshold in favor of an analysis that considers a broader set of metrics.

“Given the strengths of the insurance business model, it is clear that the property-casualty industry was not and is not a source of systemic risk to the financial system,” Wes McClelland, vice president for federal affairs for the American Insurance Association, said in a statement on Friday. “Therefore, in testing for enhanced supervision of financial institutions, the bill appropriately recognizes that risk assessment should be based on a range of factors wider than just size.”

But Rep. Al Green, D-Texas, criticized the bill during a House session on Thursday, arguing that the $50 billion threshold was chosen for a reason.

“If you don’t have a threshold, we knew at the time as we know now that you won’t get any banks designated because the banks are going to sue and they’re going to tie you up in court,” he said. “Maybe some will not, but you’re going to have a real fight on your hands getting them to be designated and it can take two to four years to get it done.”